# Let’s Do Lunch!

An episode of [Paul Krugman Podcast](https://invisiblenetwork.ai/podcast/1877144831), 5 Aug 2025, 31 min.

Audio: https://api.substack.com/feed/podcast/170192625/e2e82dc4d8fe174d330c1b6919bed1e0.mp3

Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

## Transcript

[0:00] SPEAKER_00: Hey, we're live.
[0:01] And that face you're looking at,
[0:03] the one that isn't mine,
[0:04] that's Paul Krugman's.
[0:05] SPEAKER_00: So you're not dreaming.
[0:07] SPEAKER_00: We actually have Paul Krugman up in here.
[0:10] And I'm not even going to waste valuable minutes of Paul's time
[0:15] by describing what
[0:17] SPEAKER_00: an esteemed economist he is.
[0:19] I will waste a few seconds saying what just a downright mensch
[0:22] great guy Paul is.
[0:24] SPEAKER_00: So, Paul, thank you for being here.
[0:27] SPEAKER_00: Yeah, a great economist, but even more so a great person.
[0:31] SPEAKER_00: Congratulations to you and more so to your parents.
[0:36] SPEAKER_00: Okay, let's jump in.
[0:38] There are a lot of questions this week about the firing of
[0:41] Erica McIntarfer from
[0:43] SPEAKER_00: the Bureau of Labor Statistics.
[0:45] SPEAKER_00: In the green room, I was just asking Paul to reflect a little bit.
[0:48] I'll do some too,
[0:49] but let Paul start on historical cases where governments have
[0:55] engaged in these type of actions and how they've worked out,
[0:59] which,
[1:01] spoiler,
[1:01] not good.
[1:03] SPEAKER_00: Paul, take it.
[1:04] SPEAKER_01: Okay.
[1:05] SPEAKER_01: So, in a way, the clearest example is Argentina.
[1:11] SPEAKER_01: So, Argentina, under the Kirchner government,
[1:16] SPEAKER_01: They systematically faked their inflation numbers.
[1:21] SPEAKER_01: And this was sufficiently so.
[1:25] SPEAKER_01: So the Argentine economists devised an independent measure,
[1:29] SPEAKER_01: the Billion Prices Index,
[1:31] SPEAKER_01: based on Internet data as a check.
[1:35] SPEAKER_01: And...
[1:37] SPEAKER_01: And the main thing,
[1:38] SPEAKER_01: I think,
[1:38] to say about it is that they were following irresponsible
[1:44] economic policies that
[1:45] SPEAKER_01: were clearly leading to runaway inflation,
[1:50] SPEAKER_01: not hyperinflation,
[1:51] SPEAKER_01: but serious inflation,
[1:54] SPEAKER_01: and weren't acknowledging it and probably were fooling themselves,
[2:00] SPEAKER_01: is my guess.
[2:01] I mean,
[2:01] in some ways,
[2:02] when you think about these things,
[2:05] your ability to actually fool people
[2:08] SPEAKER_01: the real world,
[2:09] SPEAKER_01: the business community,
[2:10] maybe even consumers about how fast inflation is running is
[2:14] probably pretty
[2:15] SPEAKER_01: limited.
[2:16] But your ability to convince yourself that your policies are
[2:22] working okay when in
[2:23] SPEAKER_01: fact everything is going to hell,
[2:25] SPEAKER_01: that is in many ways the biggest danger.
[2:27] SPEAKER_01: And I have no doubt that if
[2:32] SPEAKER_01: If we end up with 5%,
[2:34] 6% inflation under Trump and BLS is reporting two because
[2:38] that's what he told them
[2:39] SPEAKER_01: to,
[2:40] SPEAKER_01: that everybody will know that it's not two except possibly Trump.
[2:47] SPEAKER_01: And that's where the problem is.
[2:48] SPEAKER_00: Yeah.
[2:49] SPEAKER_00: Thank you.
[2:51] SPEAKER_00: A couple of amplification points.
[2:53] SPEAKER_00: It's actually harder than people,
[2:55] SPEAKER_00: including Trump,
[2:56] think to cook the books at the Bureau of Labor Statistics or
[2:59] the other statistical
[3:00] SPEAKER_00: agencies.
[3:01] The commissioner doesn't see the employment report until the
[3:04] numbers are locked
[3:05] SPEAKER_00: down by dozens of civil servants,
[3:09] SPEAKER_00: all of whom,
[3:10] SPEAKER_00: at least in my experience,
[3:12] SPEAKER_00: have great integrity and
[3:14] and view their job as,
[3:17] take their job very seriously in terms of providing accurate
[3:19] numbers.
[3:21] SPEAKER_00: So I strongly underscore Paul's point that this won't work.
[3:27] SPEAKER_00: And again, at the end of the day, people will know
[3:30] SPEAKER_00: What their economy looks like.
[3:31] I did want to give one anecdotal thing that happened in Greece
[3:34] just because I
[3:34] SPEAKER_00: thought it was interesting.
[3:36] SPEAKER_00: A bunch of Greek wealthy people weren't paying.
[3:40] SPEAKER_00: There's a tax on having swimming pools there.
[3:43] And a bunch of a bunch of wealthy swimming pool owners weren't
[3:46] paying their pool tax.
[3:48] SPEAKER_00: And so they took to the tax authorities took to Google Earth.
[3:53] SPEAKER_00: And was able to see who had pools, even if they reported they didn't.
[3:57] So one can use the tools of technology to— Actually,
[4:00] I have a story for you.
[4:02] SPEAKER_01: I was just talking with Janet Gornick, who runs the center where I sit.
[4:05] And there's actually a project that goes through countries'
[4:12] data and kind of looks
[4:15] SPEAKER_01: for statistical telltales.
[4:18] SPEAKER_01: of data manipulation.
[4:20] SPEAKER_01: And there was one country that,
[4:23] it turns out the program figured out that someone had gone in
[4:27] and just added three
[4:29] SPEAKER_01: to all of the numbers.
[4:31] SPEAKER_00: That's a very lazy fraudster right there.
[4:35] SPEAKER_00: But, you know, look, we obviously take this very seriously.
[4:39] SPEAKER_00: And the economic results,
[4:43] SPEAKER_00: and this is what happened in Argentina,
[4:45] SPEAKER_00: as Paul just described,
[4:46] SPEAKER_00: is that both markets,
[4:49] SPEAKER_00: internal and external markets,
[4:51] SPEAKER_00: stop trusting your data.
[4:53] SPEAKER_00: And then when creditors want to buy your bonds, they don't.
[4:57] SPEAKER_00: know what inflation is.
[4:58] SPEAKER_00: They don't know what... So they want a premium.
[5:00] SPEAKER_00: They'll charge more.
[5:01] SPEAKER_00: And so this will hurt everyone.
[5:04] And I'd argue fairly quickly if they can penetrate the
[5:09] statistical agencies and
[5:11] It's hard to do,
[5:12] but I wouldn't certainly put it past them,
[5:14] given what they're up to.
[5:18] SPEAKER_00: Now, I'm sure you didn't see this.
[5:20] I didn't either,
[5:20] Paul,
[5:20] but I looked it up because I wanted to answer this question.
[5:23] Amber H.
[5:24] asks,
[5:24] do you have any reaction to Trump's appearance on CNBC this
[5:27] morning?
[5:27] SPEAKER_00: I didn't see that.
[5:28] SPEAKER_00: I'm sure you didn't.
[5:29] SPEAKER_00: Why would we?
[5:31] SPEAKER_00: But I will.
[5:32] SPEAKER_00: I did go and look.
[5:33] SPEAKER_00: And Trump,
[5:35] SPEAKER_00: this is from the interview,
[5:36] SPEAKER_00: Trump alleged that Powell told him,
[5:39] SPEAKER_00: sir,
[5:40] SPEAKER_00: I'll keep interest rates so low.
[5:41] SPEAKER_00: I'm a low interest rate person.
[5:43] SPEAKER_00: This is Trump alleging that the chair of the Federal Reserve told him,
[5:48] SPEAKER_00: sir,
[5:48] SPEAKER_00: I'll keep interest rates so low.
[5:50] SPEAKER_00: I'm a low interest rate person.
[5:51] SPEAKER_00: Powell did not say that.
[5:53] SPEAKER_01: He never said that.
[5:54] SPEAKER_01: The telltale there is the sir.
[5:56] SPEAKER_01: As soon as Trump says, sir, you know that it's a made-up story.
[6:00] SPEAKER_00: But, yeah.
[6:02] SPEAKER_00: But, Paul, I wanted to get into—obviously, that's BS.
[6:04] SPEAKER_00: I wanted to talk about the case for a rate cut.
[6:08] SPEAKER_00: Because,
[6:08] SPEAKER_00: you know,
[6:08] Trump—just because Trump wants the Fed to cut rates doesn't
[6:11] mean there's not a case
[6:12] SPEAKER_00: for rate cuts.
[6:14] SPEAKER_00: And, you know, I happen to be on the other side of that.
[6:16] But could you talk a little bit about where you see the Fed's
[6:19] stance and where
[6:20] SPEAKER_00: you'd like them to be?
[6:23] SPEAKER_01: Okay,
[6:24] SPEAKER_01: so I'm actually,
[6:25] I'm in a stand pat position right now because there's a couple
[6:34] of things we don't
[6:35] SPEAKER_01: know yet.
[6:37] SPEAKER_01: And I don't see a compelling case either way.
[6:40] SPEAKER_01: We know that we're about to get
[6:44] SPEAKER_01: a significant inflation shock.
[6:46] SPEAKER_01: That's about as sure as anything.
[6:49] SPEAKER_01: The tariffs are, to a large extent, U.S.
[6:53] SPEAKER_01: companies have been eating the tariffs waiting for Trump's deals,
[6:56] SPEAKER_01: and now that's clear there won't be any deals,
[6:59] SPEAKER_01: they'll start to pass them on.
[7:01] So we're going to see prices coming up,
[7:03] which would be a rate hike,
[7:05] at least potentially.
[7:08] SPEAKER_01: We're also now, finally, thanks to the report that
[7:12] SPEAKER_01: Trump rejects.
[7:13] We're finally starting to see the drag on the economy from all
[7:18] of the chaos,
[7:18] SPEAKER_01: tariffs and otherwise.
[7:21] Is there anything in there that's a clear enough signal that
[7:25] would say that you
[7:26] want to cut rates to get ahead of the coming recession or raise
[7:30] rates to get ahead
[7:31] SPEAKER_01: of the coming inflation?
[7:32] SPEAKER_01: And I'd say that there isn't.
[7:36] SPEAKER_01: But, you know, there is a definite case for
[7:41] If you want to make the rate cut case the way that the sensible
[7:44] people do,
[7:44] SPEAKER_01: you say,
[7:44] SPEAKER_01: well,
[7:45] SPEAKER_01: you know,
[7:46] SPEAKER_01: the job market is weakening.
[7:48] SPEAKER_01: That's becoming increasingly clear and is now official.
[7:51] But the,
[7:52] you know,
[7:53] the sort of unofficial soft numbers were already pointing that
[7:57] way.
[7:58] SPEAKER_01: So the economy is weakening and we could be just saying they're
[8:02] SPEAKER_01: sort of strong case,
[8:03] SPEAKER_01: we're not in a recession,
[8:04] SPEAKER_01: but we could be pre-recessionary,
[8:06] SPEAKER_01: sort of like pre-diabetic,
[8:09] SPEAKER_01: and maybe.
[8:10] SPEAKER_01: And if that's true,
[8:12] SPEAKER_01: then you would want to possibly get ahead of the curve,
[8:15] SPEAKER_01: but we don't know that.
[8:17] SPEAKER_01: There is
[8:18] SPEAKER_01: You know, that's the case for a rate cut, but it's not really clear.
[8:22] SPEAKER_01: And if I had to,
[8:23] SPEAKER_01: say,
[8:24] SPEAKER_01: look a little bit further,
[8:25] SPEAKER_01: I would say in addition to the chaos caused by,
[8:28] SPEAKER_01: you know,
[8:28] SPEAKER_01: the tariffs and deportations,
[8:30] I think we're not really—we'll soon be really seeing the impact
[8:35] of those on the
[8:35] SPEAKER_01: economy.
[8:37] SPEAKER_01: But the—
[8:39] SPEAKER_01: And it also worries me that the economy,
[8:40] SPEAKER_01: you know,
[8:41] SPEAKER_01: growth is not only slowing,
[8:43] SPEAKER_01: but it's basically,
[8:45] SPEAKER_01: you know,
[8:45] SPEAKER_01: half of recent growth is data centers for AI.
[8:51] SPEAKER_01: And how long can that continue?
[8:53] SPEAKER_01: So you can make a case for that.
[8:55] SPEAKER_01: But
[8:57] SPEAKER_00: So I'm where you are, Paul.
[8:59] SPEAKER_00: I think when you're driving through the fog, you want to go slowly.
[9:04] SPEAKER_00: And so stand pat for the Fed makes sense.
[9:06] I will say that I think last week,
[9:08] which was a huge data flow week,
[9:12] some of the fog lifted.
[9:14] SPEAKER_00: And when the fog, some of the fog, some of the fog lifted it.
[9:17] SPEAKER_00: And when it did so, by the way, we're at 16K strong now.
[9:20] SPEAKER_00: I'm sorry, 1.6K viewers right now, which is great.
[9:24] SPEAKER_00: So, hey, everybody, really happy you're here.
[9:28] SPEAKER_00: One of the things we saw was stagflation, was the beginnings.
[9:34] SPEAKER_00: And this was another question.
[9:35] SPEAKER_00: This was from,
[9:39] SPEAKER_00: yeah,
[9:39] SPEAKER_00: from Grant A.
[9:40] SPEAKER_00: It's the stage being set for another round of 70s-style stagflation.
[9:44] SPEAKER_00: Paul and I, if your eyeballs do not deceive you, we were around then.
[9:50] SPEAKER_00: So 70s-style stagflation is something we're familiar with.
[9:54] Stagflation is this very undesirable and very challenging
[9:59] situation for the Fed
[10:00] where inflation is rising and growth or economic activity is
[10:05] going the other way.
[10:07] SPEAKER_00: Inflation rising says raise rates, growth going slow says cut rates.
[10:12] They have a kind of loggerheads,
[10:14] which is,
[10:14] again,
[10:14] why we think they should stand pat.
[10:16] SPEAKER_00: I will say that I think—and by the way,
[10:18] SPEAKER_00: Ryan Cummings and I have a new piece on this coming out soon.
[10:21] I will say that 70s-style stagflation was more of a story of an
[10:26] oil shock and a
[10:28] SPEAKER_00: much less,
[10:31] SPEAKER_00: I would say,
[10:32] SPEAKER_00: a much less effective Federal Reserve.
[10:35] SPEAKER_00: But, Paul, why don't you talk a little bit about that?
[10:37] SPEAKER_01: Yeah, 70s-style stagflation.
[10:38] SPEAKER_01: I mean, there were oil shocks, which were a big factor.
[10:42] SPEAKER_01: And in some ways, tariffs are kind of like that.
[10:45] SPEAKER_01: But it got built in.
[10:48] SPEAKER_01: The problem was not simply that you had a one-time rise in prices,
[10:51] SPEAKER_01: but that it got embedded into...
[10:56] SPEAKER_01: Well,
[10:57] SPEAKER_01: partly,
[10:57] SPEAKER_01: people began to expect inflation,
[11:00] SPEAKER_01: and so wage contracts,
[11:04] SPEAKER_01: prices would be set with the expectation of future inflation.
[11:08] SPEAKER_01: And...
[11:10] SPEAKER_01: That's always possible.
[11:14] SPEAKER_01: Could happen.
[11:16] SPEAKER_01: But that's not guaranteed.
[11:19] I think something like a 2% rise in prices from tariffs is as
[11:24] close to guaranteed.
[11:25] But whether that's 2% one time or 2% a year forever after,
[11:29] that's the big problem.
[11:31] And I don't think the case for the latter is there yet,
[11:34] but it's something we don't know.
[11:36] SPEAKER_01: We haven't ever done this before.
[11:41] And it's also true that in the 70s,
[11:46] lots of contracts had cost-of-living allowances.
[11:49] So that when oil prices went up,
[11:50] that sort of cascaded,
[11:52] and we don't have that anymore.
[11:55] SPEAKER_01: on any significant degree.
[11:58] SPEAKER_01: So I don't know that, it would take a lot
[12:03] It took a lot of—it actually took years of bad policy
[12:09] management and also some
[12:11] SPEAKER_01: really major bad luck to get 70 styles to inflation.
[12:16] SPEAKER_01: And,
[12:17] SPEAKER_01: you know,
[12:19] SPEAKER_01: it would take really talentedly bad leadership,
[12:22] SPEAKER_01: which arguably we have,
[12:24] SPEAKER_01: but it hasn't happened.
[12:24] SPEAKER_00: I think you could check that box.
[12:27] SPEAKER_00: I think you could check that box in terms of—
[12:31] SPEAKER_00: Sorry, did you want to finish?
[12:32] SPEAKER_00: No, go ahead.
[12:33] SPEAKER_00: Okay, so let me make two points about this.
[12:39] SPEAKER_00: First,
[12:40] SPEAKER_00: and this and the last discussion we were just having about recession,
[12:46] one of the things that the Fed does now that they didn't do
[12:49] back then is they
[12:51] SPEAKER_00: highly value something called anchored inflationary expectations.
[12:57] SPEAKER_00: You'll hear Chair Powell talk about that.
[13:00] That is probably one of the most important things that they're
[13:04] up to,
[13:05] but you can't see it.
[13:06] SPEAKER_00: So let us quickly describe what that means.
[13:08] SPEAKER_00: The idea is that if businesses,
[13:12] SPEAKER_00: wage setters,
[13:13] SPEAKER_00: Paul,
[13:13] SPEAKER_00: you've been very good on this because you always point out,
[13:15] SPEAKER_00: let's talk about whose expectations matter most here.
[13:18] SPEAKER_00: So I'll get to you on that in a second.
[13:20] SPEAKER_00: But if people setting prices,
[13:22] SPEAKER_00: setting wages,
[13:23] SPEAKER_00: believe that the Fed has a serious,
[13:27] SPEAKER_00: credible commitment to keeping inflation where it is,
[13:30] SPEAKER_00: The tariffs will be screwed up for them.
[13:33] SPEAKER_00: They'll cause uncertainty.
[13:34] People have been asking about the uncertainty effects on the
[13:37] live questions here.
[13:38] SPEAKER_00: They're real.
[13:39] SPEAKER_00: And Paul has described their impact on the economy accurately.
[13:43] SPEAKER_00: That's bad stuff.
[13:45] But as long as the Fed is committed to getting inflation back
[13:49] to where it is,
[13:51] and that helps in terms of keeping inflation from spiraling out
[13:54] of control,
[13:55] which was more of the 70s story when the Fed was less committed
[13:59] to having such a
[14:01] SPEAKER_00: credible commitment to anchored inflationary expectations.
[14:05] SPEAKER_00: By the way,
[14:05] SPEAKER_00: that happens to be highly correlated with Federal Reserve independence,
[14:08] SPEAKER_00: which the president is going after.
[14:10] I'll save my recessionary point for later,
[14:12] but Paul,
[14:13] let me kick that to you.
[14:14] SPEAKER_01: Yeah,
[14:14] SPEAKER_01: so I actually have always been...
[14:16] SPEAKER_01: There's a bit of a...
[14:17] SPEAKER_01: I mean,
[14:18] we tend to look at what are the inflation expectations in the
[14:23] bond market,
[14:24] SPEAKER_01: which is easy to measure,
[14:26] SPEAKER_01: but it's also probably irrelevant.
[14:28] SPEAKER_01: Bond traders don't set prices.
[14:31] SPEAKER_01: The price of your refrigerator is not set by bond traders.
[14:35] SPEAKER_01: The...
[14:39] SPEAKER_01: And we look at consumer expectations,
[14:43] SPEAKER_01: which is closer to it,
[14:44] SPEAKER_01: but again,
[14:44] SPEAKER_01: consumers don't really set prices.
[14:46] SPEAKER_01: And there's actually surprisingly few measures of businesses,
[14:52] SPEAKER_01: really,
[14:53] SPEAKER_01: in this world who set prices.
[14:57] SPEAKER_01: And, I mean, I look at the...
[15:03] SPEAKER_01: Atlanta Fed Business Survey,
[15:05] SPEAKER_01: which does tell you what inflation rate businesses expect,
[15:08] SPEAKER_01: but only in the Atlanta area,
[15:10] SPEAKER_01: which is,
[15:11] SPEAKER_01: all right,
[15:12] SPEAKER_01: Atlanta is enough of a representative place,
[15:16] SPEAKER_01: I guess,
[15:16] SPEAKER_01: that that's okay.
[15:17] SPEAKER_01: And so far, it's not flashing red.
[15:21] SPEAKER_01: It's up a little bit, but not much.
[15:26] SPEAKER_01: But that's so far.
[15:27] SPEAKER_01: What I think was really important,
[15:29] SPEAKER_01: yes,
[15:29] SPEAKER_01: so the Fed made a very vocal commitment to anchored expectations.
[15:35] But I think what was really important was that they actually
[15:37] delivered low,
[15:40] SPEAKER_01: stable inflation for a long time.
[15:42] SPEAKER_01: So when we got this big stock market,
[15:46] SPEAKER_01: You know,
[15:47] SPEAKER_01: the 21 to 23 surge in inflation,
[15:49] SPEAKER_01: which I think was overwhelmingly supply chain disruption,
[15:53] SPEAKER_01: that that did not persist,
[15:57] SPEAKER_01: did not get built in.
[15:59] SPEAKER_01: And I think not really because...
[16:02] SPEAKER_01: people trusted Jerome Powell,
[16:04] SPEAKER_01: at some level they did,
[16:05] but because we'd had decades of low inflation and people
[16:11] believed that the norm was
[16:15] SPEAKER_01: going to be tolerable levels of inflation.
[16:17] SPEAKER_01: And to some extent, that was a self-fulfilling prophecy.
[16:19] Once the supply chains got unsnarled,
[16:22] we went back down to fairly low inflation.
[16:25] SPEAKER_01: And that is really important.
[16:27] SPEAKER_01: The great risk of
[16:33] For one thing,
[16:33] if Trump appoints some...
[16:37] Well,
[16:38] he is going to appoint a hack to head defend.
[16:41] SPEAKER_01: The question is how bad a hack.
[16:44] SPEAKER_01: So, you know, if it's...
[16:51] SPEAKER_01: If he appoints Mike Lindell,
[16:55] SPEAKER_01: the MyPillow guy,
[16:56] SPEAKER_01: to head the Fed,
[16:57] then that might actually break through to public consciousness
[17:01] and people will say,
[17:01] SPEAKER_01: oh,
[17:02] SPEAKER_01: my God,
[17:02] SPEAKER_01: inflation is coming.
[17:03] SPEAKER_01: But mostly,
[17:04] if nothing is done and prices are visibly rising and there is
[17:08] no reaction,
[17:09] SPEAKER_01: then that will unhinge.
[17:12] SPEAKER_01: on anchor expectations.
[17:14] SPEAKER_01: And that is,
[17:15] SPEAKER_01: you know,
[17:16] SPEAKER_01: I've come to appreciate,
[17:17] SPEAKER_01: there are a lot of reasons to think that the Fed's inflation target,
[17:20] SPEAKER_01: that we'd be better off if it was three instead of two,
[17:25] SPEAKER_01: maybe even four instead of two.
[17:27] But one virtue of two is it's low enough that people really
[17:30] don't think about inflation.
[17:33] SPEAKER_01: And that's kind of where you want to be.
[17:35] SPEAKER_00: So,
[17:36] SPEAKER_00: Let me address a couple of questions that are coming in live.
[17:40] SPEAKER_00: Have tariffs delayed Federal Reserve rate cuts?
[17:43] SPEAKER_00: The answer is unequivocally yes.
[17:46] SPEAKER_00: The Chair Powell says this consistently,
[17:49] SPEAKER_00: and this has led me oftentimes to think about,
[17:52] SPEAKER_00: I really,
[17:53] SPEAKER_00: this is going to sound partisan,
[17:55] SPEAKER_00: and I'm perfectly capable of sounding partisan,
[17:58] but I often like to think about what the economy would have
[18:00] looked like without
[18:01] SPEAKER_00: Trumpian policy.
[18:04] SPEAKER_00: The economy that Trump inherited was a very strong economy.
[18:08] SPEAKER_00: Now, I was in the Biden administration, but that's not just me.
[18:11] SPEAKER_00: The Economist had a headline.
[18:13] SPEAKER_00: You know,
[18:14] SPEAKER_00: Greg Ip,
[18:14] SPEAKER_00: who hits it right down the middle in the Wall Street Journal,
[18:17] SPEAKER_00: talked exactly about this.
[18:19] SPEAKER_00: And he has been squandering his inheritance with relentlessly bad policy.
[18:25] SPEAKER_00: tariffs,
[18:26] SPEAKER_00: deportation,
[18:27] SPEAKER_00: doge,
[18:27] SPEAKER_00: harassing the Fed,
[18:28] all of these are significant negatives for the economy in the
[18:33] sense that Paul and I
[18:34] SPEAKER_00: like to talk about macro,
[18:36] SPEAKER_00: but they also hit people.
[18:38] SPEAKER_00: I mean, think about it.
[18:40] SPEAKER_00: The number one issue,
[18:42] SPEAKER_00: polling is very clear on this,
[18:43] SPEAKER_00: in terms of people's economic stress right now is affordability.
[18:48] SPEAKER_00: What is the worst policy in terms of helping people with affordability?
[18:52] SPEAKER_00: Well, it's making things more expensive.
[18:55] SPEAKER_00: And that's precisely what sweeping tariffs do.
[18:57] SPEAKER_00: So we are seeing,
[18:59] SPEAKER_00: and what's interesting about last week,
[19:01] SPEAKER_00: Paul mentioned this earlier,
[19:03] SPEAKER_00: is that for a while you didn't really see this in the hard data.
[19:06] SPEAKER_00: You saw it in the soft data, the surveys and so on.
[19:09] SPEAKER_00: Now we're seeing it in the hard data.
[19:11] SPEAKER_00: And the punchline is that if you relentlessly invest
[19:17] pursue this onslaught of bad policy,
[19:21] eventually the economy will cry uncle.
[19:23] SPEAKER_00: And I think that's what we saw last week.
[19:26] SPEAKER_00: Paul, I want to go to this great question from Scott M.,
[19:32] Is there a way to quantify the future economic damage that
[19:36] current cuts to research
[19:39] SPEAKER_00: funding will do?
[19:40] I'm worried that what this administration is doing now will
[19:42] have ripple effects
[19:43] SPEAKER_00: long into the future.
[19:45] One of the reasons I like that question is because it's hard to
[19:50] build things up and
[19:51] SPEAKER_00: it's easy to break them.
[19:52] SPEAKER_00: Could you talk a little bit about...
[19:54] SPEAKER_00: It could be about R&D and the cost to doing less R&D and so on,
[19:58] but just that theme of things that are being broken now and how
[20:02] we can build them
[20:03] SPEAKER_00: back up.
[20:04] SPEAKER_01: Yeah.
[20:04] SPEAKER_01: So, I mean...
[20:07] SPEAKER_01: You know,
[20:07] SPEAKER_01: people think of basic research,
[20:08] or at least I think some of the people in charge now think of
[20:12] basic research as
[20:13] SPEAKER_01: being,
[20:14] SPEAKER_01: you know,
[20:14] SPEAKER_01: who cares,
[20:15] SPEAKER_01: and it's all probably woke and whatever.
[20:17] SPEAKER_01: But in fact, basic research is, you know, how did we get the Internet?
[20:23] SPEAKER_01: The answer was it actually comes out of military,
[20:25] SPEAKER_01: it comes out of DARPA,
[20:27] SPEAKER_01: it comes out of military communication.
[20:29] SPEAKER_01: But generally, government...
[20:32] SPEAKER_01: Medical research,
[20:34] SPEAKER_01: we have a huge biomedical industry,
[20:37] SPEAKER_01: which may not last long if we keep on savaging
[20:42] SPEAKER_01: And these cuts, these are not gradual squeezing down.
[20:45] We're talking about something like more than a third cut in
[20:50] federal research funding next year.
[20:52] SPEAKER_01: Just like that.
[20:53] And this stuff is where,
[20:55] this is the foundation for future economic growth.
[20:58] SPEAKER_01: So that's a big deal.
[20:59] SPEAKER_01: And I've seen some attempts to quantify,
[21:01] SPEAKER_01: and I have to say,
[21:02] SPEAKER_01: I think that's a very iffy proposition,
[21:04] SPEAKER_01: but it's got to be large.
[21:06] SPEAKER_01: But there's also the most, the broader thing is,
[21:10] SPEAKER_01: You know, suppose that Trump politicizes the Bureau of Labor Statistics.
[21:15] Suppose that everybody who isn't willing to cook the books for
[21:18] Trump is forced out.
[21:23] Then along comes the next president that says,
[21:26] we actually need reliable statistics.
[21:29] SPEAKER_01: You've lost information.
[21:31] SPEAKER_01: A lot of institutional knowledge.
[21:32] SPEAKER_01: You've lost the people who know how to do this stuff.
[21:35] SPEAKER_01: Doge, you know, a lot of critical stuff.
[21:38] SPEAKER_01: I mean, there's been some overreach.
[21:42] SPEAKER_01: There have been offices that Doge closed,
[21:45] SPEAKER_01: fired everybody,
[21:46] SPEAKER_01: then realized they were actually doing something important,
[21:48] SPEAKER_01: like the people who keep our nuclear weapons safe.
[21:51] SPEAKER_01: And they have been actually,
[21:53] SPEAKER_01: in some cases,
[21:54] had a hard time even finding the people they fired and
[21:58] persuading them to come
[21:59] SPEAKER_01: back.
[22:00] SPEAKER_01: Look,
[22:00] SPEAKER_01: I haven't done a lot of work in office environments,
[22:04] SPEAKER_01: but every place,
[22:06] SPEAKER_01: any business,
[22:07] SPEAKER_01: any organization,
[22:09] SPEAKER_01: the people who know that,
[22:12] SPEAKER_01: you know,
[22:13] SPEAKER_01: where the stuff is,
[22:15] SPEAKER_01: who know that that particular thing actually,
[22:18] SPEAKER_01: if you put a little piece of cardboard under that leg,
[22:20] SPEAKER_01: it vibrates less and it works better.
[22:22] SPEAKER_01: You know, you lose all of the, all of the,
[22:27] SPEAKER_01: people we we have we have had a d.s.
[22:31] civil service uh federal civil service is really good it's
[22:35] always astonished me how
[22:37] good the people you know we have all kinds of people at
[22:40] treasury across the
[22:42] government who could be making two three times as much in the
[22:45] private sector uh who
[22:47] do their jobs because they think that it's important and those
[22:51] are the people
[22:51] SPEAKER_01: who've been told to leave and um now uh wow uh
[22:59] And putting Humpty Dumpty back together again is going to be
[23:02] really,
[23:03] really hard.
[23:03] SPEAKER_00: Yeah.
[23:06] SPEAKER_00: So...
[23:08] SPEAKER_00: Exactly right.
[23:09] SPEAKER_00: Institutional knowledge.
[23:10] SPEAKER_00: I've worked in the government and,
[23:12] SPEAKER_00: uh,
[23:12] SPEAKER_00: there are people there,
[23:13] SPEAKER_00: by the way,
[23:14] SPEAKER_00: I'm just,
[23:14] SPEAKER_00: this is very inside baseball.
[23:16] SPEAKER_00: Steve Braun,
[23:17] SPEAKER_00: uh,
[23:17] SPEAKER_00: is someone who's a legendary,
[23:20] SPEAKER_00: uh,
[23:20] SPEAKER_00: macroeconomist at the CEA who just was,
[23:23] SPEAKER_00: uh,
[23:23] SPEAKER_00: such an asset in,
[23:24] SPEAKER_00: in that regard.
[23:25] And the government,
[23:26] you know,
[23:26] civil servant government is filled with people like that.
[23:29] SPEAKER_00: Um, and,
[23:31] I did a little bit of research on this question that I just
[23:33] want to put out here
[23:36] SPEAKER_00: for Scott M.
[23:37] SPEAKER_00: You know,
[23:38] SPEAKER_00: if you look at the research,
[23:40] SPEAKER_00: for every dollar we invest in R&D,
[23:42] SPEAKER_00: the returns are somewhere in the range of,
[23:44] SPEAKER_00: you know,
[23:44] SPEAKER_00: $7 to $20.
[23:45] SPEAKER_00: So...
[23:46] SPEAKER_00: This stuff does have a very large bang for its buck.
[23:50] SPEAKER_00: The lower estimates just look at the GDP effects,
[23:52] but the higher estimates compare work in other benefits like
[23:56] health benefits.
[23:57] SPEAKER_00: And here – and a couple of our listeners have pointed this out live –
[24:02] SPEAKER_00: mRNA research that led to the vaccine for COVID.
[24:06] SPEAKER_00: It saved millions of lives.
[24:09] SPEAKER_00: This came from decades of DNA research,
[24:11] SPEAKER_00: but I was looking at an NIH article this morning that reviewed this.
[24:17] SPEAKER_00: $32 billion was spent on developing mRNA research vaccines pre-pandemic.
[24:25] SPEAKER_00: So, I think that's a great and timely example.
[24:29] SPEAKER_00: Paul, we have
[24:31] SPEAKER_00: We have five minutes left.
[24:34] SPEAKER_00: I think a lot of people are saying here live again,
[24:38] SPEAKER_00: like,
[24:39] SPEAKER_00: this is really,
[24:40] SPEAKER_00: you know,
[24:41] SPEAKER_00: thanks for the hard truths and all that,
[24:43] SPEAKER_00: but like,
[24:43] SPEAKER_00: this is really depressing.
[24:44] SPEAKER_00: And our job is not to undepress people.
[24:49] SPEAKER_00: But I personally, and I think you do too, I
[24:53] SPEAKER_00: do recognize that,
[24:55] SPEAKER_00: you know,
[24:55] you can't fool all the people all the time and that therein
[24:59] lies some hope.
[25:00] SPEAKER_00: And I've seen numerous pieces being written this past week,
[25:05] SPEAKER_00: especially with the hard data starting to show what it's showing.
[25:08] SPEAKER_00: And again,
[25:09] SPEAKER_00: considering that the Trump administration is pushing the wrong way on the
[25:15] SPEAKER_00: affordability issue,
[25:16] SPEAKER_00: which is so big for people,
[25:19] There's some sense that the actions that they're engaging look
[25:24] pretty desperate,
[25:24] SPEAKER_00: you know,
[25:25] SPEAKER_00: firing the BLS,
[25:27] SPEAKER_00: and that there's a spiral,
[25:28] SPEAKER_00: almost a spiraling out of control feeling.
[25:30] SPEAKER_00: Now,
[25:31] SPEAKER_00: you know,
[25:31] SPEAKER_00: they're going to be here for a while as far as we know,
[25:33] SPEAKER_00: and so that we're not sugarcoating anything.
[25:37] SPEAKER_00: But resistance is far from futile.
[25:40] And could you talk a little bit about what you see as the role
[25:44] of both folks like
[25:46] SPEAKER_00: us,
[25:46] SPEAKER_00: you know,
[25:46] SPEAKER_00: public intellectuals,
[25:47] SPEAKER_00: but generally those who want to try to help us get to a better place?
[25:53] SPEAKER_01: Yeah.
[25:54] SPEAKER_01: So we will have, look, we are going to have elections.
[26:02] Clearly,
[26:02] you know,
[26:04] the fugitive Texas legislators are telling you that Republicans
[26:07] are...
[26:10] engaging already in stuff that would have been unthinkable not
[26:14] long ago in an
[26:14] SPEAKER_01: attempt to rig the midterms.
[26:16] SPEAKER_01: But that doesn't mean that they're going to succeed.
[26:20] SPEAKER_01: There are going to be some elections.
[26:22] SPEAKER_01: We've had a bunch of special elections so far,
[26:24] SPEAKER_01: but there will be some bigger ones like New Jersey governor coming up.
[26:30] And even though those won't push Trump out of office,
[26:35] they will have a really strong showing.
[26:39] in undeniable ways on the part of people who say this is not
[26:44] who we are as a
[26:44] SPEAKER_01: country will embellish
[26:48] I know if you think that the courts are completely unaware of
[26:55] the polls and that
[26:58] SPEAKER_01: institutions,
[26:59] SPEAKER_01: that universities thinking about whether to cave in or whatever,
[27:05] SPEAKER_01: institutions in general,
[27:06] that they are not paying some attention to the country's state
[27:11] of mind and the
[27:13] SPEAKER_01: likelihood that Trump is not forever.
[27:18] SPEAKER_01: Of course it matters.
[27:19] SPEAKER_01: So I think that,
[27:19] SPEAKER_01: you know,
[27:20] SPEAKER_01: no one thing,
[27:21] SPEAKER_01: if you say,
[27:21] SPEAKER_01: can I stop Trump from,
[27:26] SPEAKER_01: you know,
[27:27] SPEAKER_01: it's all flashing by that,
[27:28] SPEAKER_01: you know,
[27:29] SPEAKER_01: all of the terrorists are unconstitutional and,
[27:31] SPEAKER_01: you know,
[27:33] SPEAKER_01: Strictly speaking, I think they're illegal.
[27:37] SPEAKER_01: There are laws that gives the president some discretion,
[27:39] SPEAKER_01: but he's clearly well outside the lines there.
[27:44] SPEAKER_01: Do I think that I can force the courts to rule out Trump's tariffs?
[27:50] SPEAKER_01: No,
[27:50] SPEAKER_01: but can you and I,
[27:52] SPEAKER_01: can we create an environment in which people become more willing to say,
[27:56] SPEAKER_01: hey,
[27:57] SPEAKER_01: this is not okay?
[27:59] SPEAKER_01: I think that
[28:00] SPEAKER_01: you know,
[28:00] SPEAKER_01: you do what you can,
[28:01] SPEAKER_01: and,
[28:02] SPEAKER_01: uh,
[28:03] SPEAKER_01: look,
[28:04] SPEAKER_01: um,
[28:05] SPEAKER_01: the,
[28:05] SPEAKER_01: uh,
[28:06] SPEAKER_01: one that,
[28:07] SPEAKER_01: years ago,
[28:08] SPEAKER_01: I used to worry,
[28:09] SPEAKER_01: back when,
[28:10] SPEAKER_01: uh,
[28:10] SPEAKER_01: we seemed to be losing the Cold War,
[28:12] SPEAKER_01: uh,
[28:13] SPEAKER_01: I'm that old,
[28:14] SPEAKER_01: uh,
[28:14] SPEAKER_01: the,
[28:15] SPEAKER_01: um,
[28:16] SPEAKER_01: that authoritarian transitions were irreversible.
[28:21] SPEAKER_01: And that turns out not to be true.
[28:23] SPEAKER_01: You see pushback.
[28:24] SPEAKER_01: You see the forces of decency win back.
[28:30] SPEAKER_01: You see a place like Poland step a little ways back from the edge.
[28:36] SPEAKER_01: And that could be us.
[28:37] And in the end,
[28:39] my worst fantasies are not that we are a dictatorship forever.
[28:42] My worst fantasies are that it takes a color revolution in
[28:45] America to get us out of this.
[28:47] SPEAKER_01: I don't think we're going to get that far.
[28:48] SPEAKER_01: But nothing is wasted.
[28:51] SPEAKER_01: It's the idea that you should just climb back into bed in despair.
[29:00] SPEAKER_01: If that's your attitude, you're part of the problem.
[29:02] SPEAKER_01: We've got to keep on doing this.
[29:05] SPEAKER_00: Beautifully said, Paul.
[29:07] SPEAKER_00: We hit 3.4 thousand viewers today, which is a huge record for us.
[29:14] SPEAKER_00: Thank you, everybody, for joining us.
[29:16] SPEAKER_00: I do want to underscore Paul's point.
[29:23] It is not just that resistance isn't futile,
[29:25] which Paul just eloquently took us through.
[29:27] SPEAKER_00: That's true.
[29:29] SPEAKER_00: It's also that the policies are starting to show, right?
[29:36] SPEAKER_00: The big bad budget bill is actively raising health care premiums.
[29:40] SPEAKER_00: The tariffs are actively raising prices.
[29:43] SPEAKER_00: The combination of that,
[29:46] SPEAKER_00: the Fed harassment,
[29:47] SPEAKER_00: the doge cuts,
[29:48] SPEAKER_00: the deportations,
[29:49] SPEAKER_00: we are now at a level of job growth that,
[29:52] SPEAKER_00: if it sticks,
[29:53] SPEAKER_00: is stall speed.
[29:55] And I don't care how much you want to cook the books or how
[29:58] many people you want to
[29:59] SPEAKER_00: fire,
[30:00] SPEAKER_00: the more desperate they become and the more statisticians they fire,
[30:03] SPEAKER_00: the more we'll know they're in trouble.
[30:05] SPEAKER_00: Yeah.
[30:06] SPEAKER_00: That's how that works.
[30:08] SPEAKER_00: So you really can't fool the people all the time.
[30:13] SPEAKER_00: And I would argue that part of our job,
[30:15] SPEAKER_00: and this is just echoing Paul,
[30:16] SPEAKER_00: is to elevate those points and to show not just to bash on Trump,
[30:21] but to show how their actions are hurting the very people who
[30:25] put them in office to
[30:26] SPEAKER_00: help them.
[30:27] SPEAKER_00: On that note, I can't thank you enough, Paul.
[30:29] SPEAKER_00: It's always so great when you visit.
[30:32] SPEAKER_00: And can you come back pretty soon, maybe?
[30:35] SPEAKER_01: You know, all I'm doing is writing a Substack post every goddamn day.
[30:41] SPEAKER_01: But aside from that, I have lots of free time.
[30:44] SPEAKER_00: Well, subscribe to Paul's Substack and then subscribe to mine.
[30:50] SPEAKER_00: Take care.
[30:50] SPEAKER_00: Bye-bye.
[30:50] SPEAKER_00: Take care, all.

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